RE65C23: Advanced Industrial Real Estate Brokerage, Logisitics and Supply Chain

COURSE PURPOSE, RELEVANCE OR OBJECTIVE: To expose to the seasoned industrial broker, a more detailed understanding facing industrial users that have changed their business model and the industrial site selection process. The material covers today’s logistics chain supply and the impact on Massachusetts industrial users. Information includes new industrial user metrics; port, air and rail logistics; intermodal hubs and the new shift from China back to the U.S. These new rules are critical to any industrial broker dealing in today’s Massachusetts industrial site selection process or delivering industrial space.

1. Economics of a Manufacturer

1. New economic expenses that face manufacturers and drive real estate decisions
   1. Defining terminology: logistics, supply chain, intermodal and TEUs (twenty equivalent units)
   2. Labor and transportation cost issues and how it is narrowing profit margins. Discuss transportation and labor cost as a percent of total operating costs in order to understand its importance and the reason to outsource to other countries
   3. Expensive land costs in MA that can drive up the rental rates to an industrial user and force users to move to less expensive markets.
   4. Discuss increasing transportation costs. Discussion on the four intermodals: air, rail, trucking and sea. How do intermodal choices impact port entry locations? How do intermodal transportation costs influence U.S. site selection decisions such as opting for the west coast over the east coast?
   5. Discussion on U.S. E-Commerce sales and the impact on site selection choices in the U.S. and MA. The total U.S. ecommerce to retail sales percentage. The Amazon effect and its impact on retail sales as a percent of the total. How has Amazon impacted distribution in MA?
   6. Decentralized v. Centralized distribution models that a broker should understand when working with a MA industrial company. How can decentralization models attract end-users to New England and MA?

2. Logistics and Supply Chain Process

1. The broker’s need to understand logistics chain process and intermodal choices in industrial site selection that can influence an end-user’s site selection: air, sea, rail and truck. Discussion about 3D printing and Vulcan Forms in
   1. Industrial broker’s knowledge of the new third Panama Canal and the shift from the west coast to the east coast. How the east coast ports prepared its harbors with dredging and raising bridges including Boston. Review of the third canal in Panama.
   2. Review select west coast ports TEU volume, Gulf Coast ports and east coast (including Boston)
   3. Cost effective shipping options such Boston harbor and the use of Massport that might make Boston a more popular location as a secondary port. Is Boston a hinterland?
   4. Advantages and disadvantages of ports selected for review. Define drayage and drayage costs to consider for the end-user.
   5. Review large ships such as the Big Emma that drive the need for Post Panama cranes, deeper harbors and bridge clearance. A broker’s need to understand how the MA client is shipping and the geographical constraints that can impact site selection decisions.
   6. Review any online shipping tracking resources such as vesselfinder.com
   7. Review select cargo airports and cargo location advantages (including Logan International). Discussion on Air Freight with high value inventory (Logan Airport) as an alternative. 
   8. Kennedy Airport is still the preferred airport and how that negatively affects Boston and New England.
   9. Identifying how intermodal plays a wrinkle to the distribution of goods and building selections that are rail-served for delivery of bulk goods. How volume pricing and transportation choices of air, rail, sea and truck. What is the impact of transportation choices to geographical industrial site choices?
   10. Rail needed to transport to Chicago as largest distribution center in U.S.
   11. Review rail service. Define Class I, Class II and Class III rail and what exists in MA. Define long and short-line rail service. Advantages of MA to Newburgh, NY or Lehigh Valley as distribution centers.
   12. Rail service and benefits (with such companies as CSX Corporation and its partners). The definition of double-stacking, size of cars, switching issues, day and night service, faster and more efficient as compared to trucks. Identify various rail service in MA. Discuss how a broker should be contacting rail services prior to conducting site selection services.
   13. Define demurrage costs and the impact on a MA distribution company. Review of rail issues to travel from east coast ports to Chicago going through the Appalachian Mountains.
   14. Identify large rail centers in the U.S. such as Joliet, IL and Kansas City
   15. How the merger of CP and KCS impacts the Northeast and MA markets
   16. A review of recent shifts from container shipping and industrial ports such as Boston to inland transportation hubs. Define In-land ports.
   17. How onshoring, reshoring and 3D printing could shift manufacturing from Asia to   
   18. MA
   19. Define long-haul and short-haul truck drivers and the cost of real estate as it pertains to distance based pricing.
   20. “Turn” rates per day for trucks as a metric is important (to and from port to distribution center) and how that influences site selection to more expensive locations.
   21. Highway access and traffic issues for trucks traveling in MA and Boston from ports moving west.

3. Industrial Site Selection Brokerage Issues

1. Industrial brokers need to know how small Massachusetts users seek niches to be creative; supply local customers and be more agile on service and to understand how the real estate decision is affected by operational variables.
   1. Broker’s knowledge of industrial user’s customer contracts and workplace operations that affect real estate leasing terms for flexibility, rent, total occupancy cost, etc. It is not about comparing one industrial building’s rent to another building’s rental rate.
   2. New industrial trucking metrics that determine building affordability such Cost per mile, cost per cubic feet, cost per truck delivery, frequency of “turn rates”; cost per truck deliveries per route, net margins as a percent of real estate costs, cost per palate, etc.
   3. The industrial broker’s knowledge to about “logistics hubs” and how 3PLs (third party logistics) can save money for an MA company. Defining a 3PL company (third party logistics).
   4. Discuss the industrial trend to move oversea operations to the U.S (onshoring, reshoring and near shoring); due to productivity, work ethic, delays, copyright infringements, transportation/distribution costs and overall operational efficiency.

4. Industrial Real Estate Cost Comparison

1. The knowledge needed by industrial brokers to identify and use the metrics systems employed by industrial users in real estate decisions as mentioned above. The broker’s need to ask the relevant questions.
   1. Discussion on how rental rate comparisons have become less important as a metric for brokers when surveying the industrial marketplace. Delineate the operational costs of an industrial user: transportation, inventory, labor and rent as a percent of total costs.
   2. How an industrial broker’s knowledge of financing with MassDevelopment, MassPort and Mass Alliance has been a new partner.
   3. New economic expense metrics that impact affordable rental rates and the exodus from Massachusetts to other states.

5. The 21st Century Industrial Building Physical Characteristics

1. Discussion of “Just in Time” process, bar coding and the impact on building design that can decrease the need for space. How it saves the end-user money but not shutting down a building for inventory count.
   1. How automation, robotics (such as Kiva, Lotus, drones, etc.) and new technology have changed the industrial physical needs by saving on labor costs and expediting the delivery of goods to trucks, air, and sea. See Quiet Logistics in Devens as 3PL with Kiva robots.
   2. Global Positioning System (GPS) use for air transportation and telecom needs at industrial facilities that the broker needs to be aware of.
   3. Brokerage understanding of how industrial users are re-evaluating their supply chain strategy and its impact for distribution space with higher ceiling heights and using cubic feet as a metric.
   4. Brokers understanding of cross-dock warehousing. Defining “cross-docking” and what the advantages are to an end-user and its need in a warehouse building
   5. Identifying any corporate site selection modeling or analytics to determine industrial site selections or the use of case studies.
   6. Discussion on the future of logistics, supply chain distribution market.

 

 

Reference:     “The World is Flat” by Tom Friedmann

                        “China Inc.” by Ted Fishman

                        CoreNet Industrial

                        Society of Industrial and Office Realtors

                        National Association of Industrial and Office Properties

                        CSX Rail Map